DURHAM, N.H. – Changes in the value of the dollar can substantially
affect the international competitiveness of New Hampshire exporters
and the overall New Hampshire economy. Not only do New Hampshire
manufacturing exports support more than 20 percent of New Hampshire
manufacturing jobs, the jobs they support are in relatively high-paying
industries such as computer and electronic products.

These findings and more are discussed in a new research report,
“Foreign Exchange Rate Exposures of New Hampshire Manufacturing
Industries: Competitive Implications and Managerial Strategies,”
published by the International Private Enterprise Center at the
University of New Hampshire Whittemore School of Business and Economics.
The paper will be presented in October at the Northeast Business
and Economics Association Conference in Rhode Island.

“To track and evaluate how these changes affect New Hampshire
manufacturing firms, the International Private Enterprise Center
constructed two foreign exchange rate indexes based on the destination
of New Hampshire manufacturing exports -- New Hampshire Nominal
Exchange Rate Index (NERI) and the New Hampshire Effective Exchange
Rate Index (EERI),” according to Fred Kaen, co-director of
the center and professor of finance.

The NERI is a trade-weighted index that is calculated using actual
(nominal) exchange rates. According to the research, from a base
of 100 in 1999, the NERI rose from 100 to 109.22 or 9.22 percent,
reflecting the strengthening of the dollar in the foreign exchange
markets. However, since 2001, the nominal dollar has weakened considerably
and the NERI has fallen from 109.22 to 94.47 or 13.5 percent.

“This strengthening and weakening of the dollar is mirrored
in changes in total New Hampshire exports. New Hampshire exports
fell sharply in 2002, in part reflecting the strong dollar and began
recovering in 2003and 2004 in part due to the weakening dollar,”
according to Kaen.

Since 2002, the currency competitive position of New Hampshire exporters
has improved more than that for the typical U.S. firm. “This
improvement is particularly noticeable with respect to Canada, New
Hampshire’s major trading partner, and with the European countries
that have adopted the Euro as their currency, New Hampshire’s
second most important currency/trade area destination,” Kaen
said.

New Hampshire exporters have not experienced much change in the
nominal exchange rates they face in Asia. The New Hampshire Asian
trade area index has moved within a narrow range of 99.94 to103.28
since 1999. However, exports to China have increased substantially
and, as a percent of total exports, moved from 1.1 percent to 4.5
percent despite the fact that the Chinese have kept their currency
pegged to the dollar at a constant rate from 1999 until recently.

“Given China’s recent decision to revalue its currency
upward, the potential for further growth in New Hampshire exports
to China seems promising,” Kaen said.

New Hampshire exporters have experienced a deterioration in their
currency competitiveness relative to Latin and South American countries.
Nevertheless, exports to these destinations, especially Mexico,
increased in 2004 after falling in 2002.

The EERI is also a trade-weighted index but uses purchasing power
parity exchange (PPP) rates instead of the actual exchange rates.
PPP exchange rates are used to measure whether a country’s
currency is overvalued or undervalued in terms of what it can buy
in foreign countries. An index value of more than 100 means that
the dollar is overvalued making New Hampshire exports more expensive
in real terms than those of other countries. An index value of less
than 100 means that dollar is undervalued thereby enhancing the
currency competitiveness of New Hampshire exports.

In 1999, the EERI stood at 114.94, meaning that New Hampshire exporters
faced an overall currency competitive disadvantage with respect
to trading partners. The EERI climbed to a high of 120.04 in 2002.
Since 2002, though, New Hampshire exporters have experienced a substantial
improvement in currency competitiveness, with the EERI actually
below 100 at 98.17 in 2004.

“In other words, in real terms, New Hampshire exports today
are less expensive than they would have been had purchasing power
parity held in the foreign exchange markets,” Kaen said. “In
fact, relative to 1999, New Hampshire exports have become considerably
less expensive in real terms in all currencies except the Japanese
yen. Currency-specific effective exchange rate indexes dropped from
100 in 1999 (after rising through 2001) to the mid-80s for Canada,
the United Kingdom, Euro countries, Mexico and Australia. Thus,
New Hampshire exporters should continue to see an improvement in
their international competitive position through 2005.”